The automakers are resisting Chapter 11. So what should we do with them instead?

The phenomenon we now know as Chapter 11 bankruptcy was born during the financial panics that regularly pummeled the U.S. economy in the 1800s. Railroads had emerged as the country's first large industrial corporations, and every time the markets crashed and the economy slumped, many found themselves unable to pay their bills.

These railroads were worth more alive than dead, so inventive people figured out ways to reorganize them rather than shut them down. "The investment banks and lawyers and managers would negotiate a deal and get the courts to bless it," says David Skeel, a law professor at the University...